Retrenchment (also called redundancy or downsizing) is one of the authorized causes for termination of employment under Article 298 of the Labor Code of the Philippines (Presidential Decree No. 442, as amended and renumbered). When a company implements retrenchment to prevent or minimize business losses, installs labor-saving devices, or declares positions redundant, affected employees are entitled to specific statutory rights, including separation pay.

In practice, many companies first offer a Voluntary Retrenchment Program (VRP), Voluntary Separation Program (VSP), or Early Retirement Program (ERP) before proceeding to involuntary or forced retrenchment. These programs allow employees to “volunteer” to leave in exchange for a separation package that is usually equal to or better than the statutory minimum.

This article comprehensively explains the rights of employees who volunteer under such programs, the legal nature of the separation, the computation and tax treatment of separation pay, and the pitfalls employees must watch out for.

1. Legal Nature of “Volunteering” for Retrenchment

Volunteering for retrenchment is not the same as voluntary resignation.

Voluntary resignation is a personal decision of the employee with no business-related cause. The employee is not entitled to separation pay unless the employer voluntarily grants it.
Volunteering under a company retrenchment/redundancy program is done within the context of an authorized cause (retrenchment, redundancy, installation of labor-saving devices, or business downturn). The separation is therefore involuntary in character, even if the employee applied or manifested willingness to be included.

The Supreme Court has repeatedly ruled (G.R. No. 212081, Re: Voluntary Separation Program of San Miguel Corporation, 2017; G.R. No. 222095, Waterfront Cebu City Hotel v. Jimenez, 2018, among others) that employees who avail of a voluntary separation or early retirement program offered in the course of retrenchment or redundancy are still considered dismissed due to authorized cause and are entitled to the full statutory benefits as if they were forcibly retrenched.

Key principle: The voluntariness only pertains to the employee’s willingness to be included in the list; the cause of separation remains the company’s business decision (redundancy or losses). Therefore, the employee cannot be deprived of statutory separation pay.

2. Statutory Separation Pay Entitlement

Under Article 298 of the Labor Code, an employee terminated due to retrenchment, redundancy, installation of labor-saving devices, or closure not due to serious business losses is entitled to separation pay equivalent to:

At least one (1) month salary or at least one-half (½) month salary for every year of service, whichever is higher.

A fraction of at least six (6) months is considered one whole year.

Examples (assuming monthly salary of ₱50,000):

8 years 5 months → considered 8 years → ₱50,000 × 8 = ₱400,000 minimum
Higher of: 1 month × 8 = ₱400,000 or ½ month × 8 = ₱200,000 → employee gets ₱400,000
10 years 7 months → considered 11 years → 1 month × 11 = ₱550,000 or ½ month × 11 = ₱275,000 → employee gets ₱550,000

In voluntary programs, companies almost always offer enhanced packages (1.0×, 1.25×, 1.5×, or even 2.0× monthly salary per year of service) plus other incentives (rice subsidy, medical reimbursement, etc.). The employee is entitled to the higher amount between the statutory minimum and the company offer.

3. Other Mandatory Benefits Upon Separation (Whether Voluntary or Involuntary Retrenchment)

Pro-rated 13th-month pay for the year of separation
Conversion to cash of unused service incentive leave (SIL) / vacation leave / sick leave (depending on company policy or CBA)
Final pay (unpaid salaries, allowances, overtime, etc.)
Certificate of Employment with correct cause of separation (“retrenchment” or “redundancy,” not “resignation”)
Release of backpay, if any
Tax-exempt separation pay (see Section 7 below)

4. Notice Requirements Even in Voluntary Programs

Even when employees volunteer, the employer must still comply with procedural due process for authorized cause termination:

Written notice to the employee at least one (1) month before the effective date of separation.
Written notice to the Department of Labor and Employment (DOLE) at least one (1) month before (using DOLE Establishment Termination Report form).
Payment of separation pay not later than the effective date of separation unless the company policy or agreement provides otherwise.

Failure to give proper notice entitles the employee to nominal damages (Supreme Court awards ₱30,000–₱50,000) even if separation pay was paid.

5. Quitclaims: Validity and Limits

Many companies require employees to sign a Quitclaim, Release, and Waiver upon receipt of the package.

A quitclaim is valid only if:

It was executed voluntarily
The consideration is reasonable and not grossly inadequate
There is no vitiated consent (fraud, mistake, undue influence)

The Supreme Court has consistently invalidated quitclaims where the amount received is below the statutory separation pay or where the employee was in a disadvantaged position.

Important: An employee who signed a quitclaim can still file a case within four (4) years if the amount received is below the legal minimum. The quitclaim does not bar recovery of the unpaid balance.

6. Tax Treatment of Separation Pay

Under Section 32(B)(6)(b) of the National Internal Revenue Code (as amended by the TRAIN Law and CREATE Law):

Separation pay received by an employee due to involuntary separation (including retrenchment, redundancy, or voluntary separation within such context) is exempt from income tax and consequently from withholding tax.

This exemption applies even if the employee volunteered under a company retrenchment program, because the root cause is still the authorized cause, not the employee’s personal decision.

If the company erroneously withholds tax, the employee can claim a refund from the BIR or demand correction from the employer.

Financial benefits received under a voluntary redundancy program approved by the BIR (common in large companies) are also tax-exempt.

7. Can an Employee Withdraw the Application to Volunteer?

Generally, yes, if the withdrawal is made before the employer formally accepts the application and before the separation becomes effective.

Once the employer has accepted the application and the employee has received or accepted the separation package, withdrawal is no longer allowed unless both parties agree.

8. Relevant Supreme Court Doctrines

San Miguel Properties v. Gucaban (G.R. No. 153982, 2011) – Early retirement or voluntary redundancy packages offered in the face of retrenchment are considered involuntary separation.
Re: Application for Retirement Under RA 1616 of Judge Concepcion, 2019 (though a different context) – Reiterated that benefits under redundancy programs are not gratuity but statutory rights.
Waterfront Cebu City Hotel v. Jimenez (G.R. No. 222095, March 14, 2018) – Employees who availed of voluntary separation are still entitled to separation pay equivalent to retrenchment pay.
Indophil Acrylic v. NLRC (G.R. No. 96490, 1993) – Quitclaims executed for amounts below legal entitlements are not binding.

9. Practical Advice for Employees Considering Voluntary Retrenchment

Always compute your statutory minimum before signing anything.
Do not accept any package below the legal minimum.
Have the Deed of Release/Quitclaim reviewed by a labor lawyer if possible.
Ensure the Certificate of Employment states “retrenchment” or “redundancy” (this helps in future job applications and unemployment benefits claims with SSS).
Keep copies of all documents: offer letter, acceptance letter, computation sheet, final pay slip, BIR Form 2316 (which should reflect tax-exempt separation pay).
File a complaint with the NLRC within four (4) years if you later discover you were underpaid.

Volunteering for retrenchment under a company program does not strip you of your statutory rights. You remain protected by the Labor Code’s provisions on authorized cause termination, separation pay, notice, and tax exemption. The “voluntary” aspect only gives you the option to be included — it does not convert the separation into a simple resignation that forfeits your benefits.